Licence to build, licence to charge? Market power, pricing and the financing of airport infrastructure development in Australia

- Interviewees stated that commercial price negotiations are improving.
- Airlines and airports refrain from a return to a stronger regulation environment.
- For airlines, value-for-money is the main concern in new infrastructure investments.
- Experts suggest that a more accessible arbitrator are required.
- Vertical relationships, long-term arrangements, and transparency are key to LHR.

In 2017, airport privatisation in Australia reached a 20-year milestone, with its regulatory framework been shifted to a light-handed regulation in 2002. The light-handed regulation (LHR), as in place at Australia's top four airports, has been suggested as the 'frontier of international policy', leading to increasing interest among transport policymakers and researchers. This article offers an in-depth examination of the LHR with focus on a) the market-power of the regulated airports, b) the commercial price negotiations between airports and airlines, and c) the airports' behaviour towards infrastructure investment. The article reports on data from 21 semi-structured interviews conducted with key stakeholder groups affected by, or with expertise in, the LHR. Findings suggest that despite airports possessing significant market power, particularly in the domestic market, the light-handed approach seems to balance the forces in a market where an airline duopoly prevails (Qantas and Virgin Australia groups). In addition, both airports and airlines perceive that commercial price negotiations are improving and refrain from a return to a stronger regulation environment. For airlines, value-for-money is the primary concern in new infrastructure investments. Interviewees also outlined specific recommendations for improving the LHR framework, including a more accessible arbitrator and improved methodologies to monitor prices and quality of service. The findings point towards the significance of vertical relationships, long-term arrangements, and transparency as key aspects of the LHR and the development of airport infrastructure.